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Why Home Depot Is Dominating the Dow

The home improvement retailer benefits from an improving housing market.

The Dow Jones Industrial Average(DJINDICES:^DJI) contains 30 of the best-known and most successful companies in the world. They build the airplanes we ride on, serve us millions of hamburgers every day, and bring us the Internet on the devices they assemble.

But while their distinct identities are often usurped by inclusion on the index, each of the Dow's components offers investors unique opportunities and exposure. With this in mind, this article series provides a cursory update on each of the 30 stocks included on the storied index.

Home Depot(NYSE:HD) Despite the continuing economic malaise, Home Depot has absolutely dominated the broader market of late. As you can see in the chart below, its stock is up a whopping 42%, outpacing the Dow by nearly 33 percentage points since the beginning of the year.

Source: YCharts.

The massive home improvement retailer's success is tied to two factors. First, there's its impressive top- and bottom-line growth. In the first quarter of the year, on a year-over-year basis, revenue increased by 5.9%, domestic same-store sales by 6.1%, and net earnings per diluted share by 36%. In the second quarter, revenue increased by 1.7%, domestic comps by 2.6%, and net earnings per diluted share by 17.4%.

Second, many analysts are predicting the beginning of a housing recovery. "Make no mistake: Housing is recovering," my Foolish colleague Morgan Housel said recently. Among other things, single-family housing starts are up 22% year over year, and the Case-Schiller index has increased for five consecutive months. In addition, as my colleague John Divine discussed, housing starts are climbing at the fastest rate in nearly 30 months, surging 5.5% in August to an annual rate of 535,000.

Should you buy Home Depot?The answer to this question depends on how optimistic you are about the vitality of the housing recovery. If you believe it will continue, then Home Depot isn't a bad play -- though there are certainly other ways to play this market as my colleagues Amanda Alix, Andrew Tonner, and Alex Planes have all spelled out, respectively.

If you don't have this level of confidence, you may be better off with one of the stocks indentified in our free report about three Dow stocks every dividend investor needs. As you can see by clicking here now, this report identifies three unbreakable stocks that are bound to perform over the long-run regardless of challenges to the broader economy.